The federal government’s problem-plagued Phoenix pay system was mismanaged from the very beginning, says a new report that lays blame for the bungled project squarely at the feet of bureaucrats.

The findings were contained in the auditor general’s latest report to Parliament, which also found flaws in Canada’s military justice system; how government surplus assets are disposed of; and how Ottawa has failed to close socio-economic gaps between on-reserve First Nations people and other Canadians.

“The building and implementation of Phoenix was an incomprehensible failure of project management and oversight,” auditor general Michael Ferguson said in his second report on the pay system in six months.

The pay system was never properly tested before its initial launch in February 2016, and Phoenix executives either didn’t understand or ignored warnings of problems, choosing to place potential savings targets ahead of system readiness, said Ferguson’s spring report.

“Phoenix executives were more focused on meeting the project budget and timeline than on what the system needed to do,” the report concluded.

Initially conceived in 2009, the former Conservative government had projected Phoenix would save taxpayers about $70 million annually by requiring fewer people to work on pay files.

So far, however, it’s estimated that the system could cost $1.2 billion by the time it is stabilized, which could take years.

More than half of the federal government’s 290,000 employees have reported being affected by Phoenix over the past two years. Some have been overpaid, some underpaid and others not paid at all — in some cases for months at a time.

How a system with such glaring shortcomings could be fully launched without raising alarms at the highest levels came down to who was minding the store, said the report.

“Overall, we found that there was no oversight of the Phoenix project, which allowed Phoenix executives to implement the system even though they knew it had significant problems.”

It meant the deputy minister in charge of the project didn’t receive independent information showing that Phoenix was not ready, auditors concluded.

The report recommended that an oversight mechanism be put in place before any new IT projects are launched.

In its response, the Treasury Board Secretariat said it will ensure independent reviews are conducted on all such government-wide projects in future, and that the deputy ministers and senior executives responsible for them are made aware of the findings.

Auditors found that Public Services and Procurement Canada, which is responsible for the pay system, was aware of significant failings even before the initial system launch in February 2016, but appeared to ignore the warning signs.

Concerns about Phoenix raised by other departments and agencies caused Treasury Board to hire Gartner, an IT consulting firm, in December 2015 to assess the government’s readiness for Phoenix.

Gartner identified several risks and recommended Phoenix be launched in a limited number of departments with less complicated pay needs, and that Phoenix and the old pay system be run in parallel in case anything went wrong.

“We found that (Phoenix executives) did not consider the report’s findings and recommendations before Phoenix was implemented,” auditors concluded.

The backlog of problem pay transactions awaiting processing at the government’s pay centre in Miramichi, N.B., exceeded 600,000 earlier this month, down from a peak of 633,000 reached in January.

Some of the errors, such as minor overpayments, have been relatively easy to correct. In other cases, however, government workers have reported months-long pay nightmares and endless headaches – diminished credit ratings and missed tuition payments among them.

While the Trudeau government has apologized repeatedly for the “suffering” felt by public servants under Phoenix, and have pledged to compensate “those who have incurred out-of-pocket expenses as a result,” they have also attempted to distance themselves from the debacle, referring to Phoenix as “the Conservative pay system.”

Civil service unions, however, have pointed fingers at the Liberals, insisting the current government is responsible for paying its employees.

The Conservatives have also deflected blame; Opposition Leader Andrew Scheer has argued that, ultimately, it was a Liberal government decision “to press the start button.”

In its latest report, the auditor general’s office was also critical of Canada’s military justice system, saying delays have resulted in at least one court martial case being thrown out, with others facing charges never going to trial.

The report also found that the government routinely sells off surplus assets at fire sale prices when goods or equipment could be reused by other federal organizations instead. Based on the government’s own accounting, auditors said assets were sold for less than two thirds of their value with almost no consideration given to repurposing.

One department, however, was held out as an example of the benefits of reusing assets. Auditors said the Canada Revenue Agency saved more than $4.5 million over three years by adopting reuse practices.

Ferguson also called for a “fundamental rethink” of how the government provides social services to Indigenous Canadians.

The auditor was particularly critical of Indigenous Services Canada for overstating on-reserve high school graduation rates among First Nations students by up to 29 per cent.